Lecture notes - demand and the consumer

DEMAND AND
THE CONSUMER

, BUSINESS ISSUES: DEMAND AND THE
CONSUMER

• What determines the amount of a product that a consumers wish to buy
at each price?
• How does consumer satisfaction or utility affect purchasing decisions?
• Why are purchasing decisions sometimes risky for consumers?
• How do attitudes towards risk vary between consumers?
• How can insurance help to reduce or remove the level of risk?
• Why may insurance companies have to be aware of high risk consumers
being more likely to take out insurance (’adverse selection’) and people
behaving less carefully when they have insurance (‘moral hazard’)

, TOTAL UTILITY THEORY


• As you get additional units of something that you like, your level of satisfaction
(utility) will rise.
• Each time you get an additional unit of the thing, your level of satisfaction will
rise, but by a smaller amount than the time before,
• So, each additional unit gives you less satisfaction, or utility, than the unit before
the law of diminishing marginal utility or returns.

, DEMAND AND THE CONSUMER

Marginal Utility Theory
and
Products and Services